Commercial lending is similar to personal lending in some aspects but not all of them. In most cases the terms and repayment schedule for a commercial loan are very different than that of a personal loan.
Most consumers are familiar with a typical personal mortgage loan and the terms of 15 or 30 years. With this type of loan you make regular payments which are amortized. But commercial loans are available in two different formats. The first is an intermediate term loan and it covers a span of three years or less. The second is a long term loan and those will span five to twenty years. In addition, there can be a balloon loan which has a final payment that is the balance of the loan at that time.
The balloon loan is the type that requires some careful consideration and planning for a business owner. This can be a good solution if you know that your business will have a much larger income in a few years or if you are expecting to sell shares of the company to raise capital to pay off the mortgage. The term is typically five to seven years and then the final payment comes due. In most cases, this payment is a very substantial amount. Over the course of the loan the payments have been manageable but they have not reduced the loan amount a great deal. Hopefully you have been setting aside money to make the final payment on your commercial mortgage but if you have not then you are going to need to refinance the balance of the loan.
Refinancing the balance to a long term amortized loan could be an option, but you will need to be sure that your business is financially stable and can qualify for the new mortgage. In most cases, a company that has been in operation for five to seven years has enough credit established to qualify for a mortgage loan, but if not then you will need to submit personal financial documents from the business owners to secure the loan. Also, the equity that you have in the property should help your business to secure the funding needed to pay off the original balloon payment.
Often times a commercial loan will have the interest rate listed and then also points will be listed. That is in essence the same as interest but it is paid immediately. So be sure to add up both of those items to know the true rate that you are paying for the money that you are borrowing. You can also help to reduce the interest rate that you are paying by making as large a down payment as possible. The larger the down payment the more equity there will be in the property and that means less risk for the lender so they offer a better interest rate.
There are many different types of commercial lending available and you need to be diligent in learning as much as you can about the loans and their different benefits. Repayment schedules can vary greatly and what seems like a reasonable monthly payment can leave you scrambling to meet a balloon payment that could end up in a foreclosure. Make a smart selection to ensure that your business remains financially stable.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.